How to make a business proposal that works
Julius Pankoke | May 9, 2016
An idea lives or dies with its execution. This execution part is what entrepreneurs usually need help with, mostly in form of foreign capital. To gain access to these funds you have to be able to present your business model to investors. Your business proposal can be directed to several types of investors.
We are going to take a look at the three most common types of foreign investment: bank loans, venture capital and crowd funding. Before you start pitching your new special product, there is some preparation to be done.
A good plan is half the battle. This is especially true if you are planning to start a business. If a good idea would be all that was required to be an entrepreneur, we would all be running a business. The first thing you should do is to validate your idea. Don’t just ask your best friend if they like it. Get out there and pitch it to everyone willing to listen. Family, friends, mentors etc. Take their questions and suggestions to hard and use them to fine tune your concept.
Develop an MVP (Minimum Viable Product), that fulfils the primary function it should with the least amount of development possible. Once that is up and running, show it to your target audience. Don’t be discouraged by criticism. At this point in the development it is the best thing that can happen to you. Again, use the pointers to improve on the original design.
This process gives you the certainty that once your business is up and running, people will actually buy what you offer. Additionally, it is vital to one of the investment types we are going to talk about later on.
The classic among foreign investment. They will provide you with a loan that enables you to initially weather the costs of setting up a business. In return you make regular payments to repay what you received plus interest. Banks have been becoming more reluctant to give loans to startups, since the risk of not receiving repayment is high.
To convince banks that you are not one of those doomed companies, you will have to bring your A-Game. That means: A fully fleshed out business plan, including a fool proof financial plan. You can work under one safe assumption. Nothing impresses them more than numbers. All the fancy descriptions in the first half of your business plan are of secondary importance to them. What they want to know is: When will your business be profitable and will it be able to make payments? So you have to make sure you show how your startup will reach breakeven and in what timeframe. Don’t try to manipulate any figures, they will notice. Be truthful and precise.
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This is what you hear in the news. A revolutionary idea got millions of dollars. But where from? Venture capitalists. These are wealthy individuals, usually organised in groups, who invest in promising conceptss. Different to banks, they don’t do this for repayment and interest, but for shares in the company. They evaluate the concept and then make an offer of X dollar for Y% shares.
To make a successful business proposal to a venture capitalist, you will have to employ different tactics than when talking to a bank. Prepare a pitch deck for your talk. That is a quick overview of your planned enterprise that is less detailed than a business plan. This will allow the investor to grasp the idea fast and easily. A business model canvas is a nice format for a pitch deck. You should still have a full business plan as a backup, in case there are more in-depth questions.
Instead of focussing solely on the financial part, you should show that you already know that customers will be willing to pay (this is why you did all the work in preparation). Showcase a functioning prototype if you have a physical product, and give a quick tour through the most important parts of your business (sales, costs, marketing etc.). Be prepared to answer any and all questions. Venture capitalists are known to ask difficult questions to see if you are really prepared.
If they decide to back your plan, they will either make you an offer or want one from you. Evaluate your business beforehand and decide for how much capital you are willing to part with how many shares. Leave a little room for negotiation. Some investors might try to force a low price to see how good you are as a sales person.
Fun but unpredictable. You present your concept to an online crowd and ask them to invest in your project. This can be either bound to a share per dollar deal or be a pure investment in kind on the side of the crowd.
Before you jump in and set up your Kickstarter, there are a few things you should consider. First and foremost: There is no guarantee of success. You might fall short of your intended investment goal. Keep that in mind if you rely solely on this form of investment.
You will need a prototype. It doesn’t matter if it is a physical product or a service, you need a comprehensive explanation of your project. Publishing your business plan online might not be the best approach, so you need to build a kind of online pitch deck. This site should showcase your project without giving away all the business details. Most crowd financing platforms have dedicated pages for that purpose. If not, you will have to create a landing page yourself.
Crowd funding platforms are full of dead or dying campaigns. Setting up your campaigns is just half the battle. After it you have to dig deep and summon your inner marketing manager. Nearly all successful projects have a dedicated marketing team. Use every channel available to get your campaign out there (Social, SEO, Email etc.). A nice incentive for potential investors are rewards. You can give out early access or shipping priority for your investors. You can even organise the system in tiers – the bigger the investment, the cooler the reward.